The compensation bill to bank customers who were charged for services they never received has skyrocketed to $180 million and could still go higher.
A report from the Australian Securities and Investments Commission into the charging of advice fees without providing advice by banks and major financial institutions has found more than 200,000 customers have so far been identified as affected by the scandal.
So far the big four banks, as well as wealth manager AMP, have paid out — or agreed to pay out — $23.7 million to more than 27,000 customers.
"We expect these compensation figures to increase substantially in the coming months as the process to identify and compensate affected customers continues," the ASIC report said.
"Our current estimate is that compensation may increase by approximately $154 million plus interest to over 176,000 further customers, meaning that total compensation for related failures could be over $178 million."
ASIC stresses the figures were based on estimates supplied by the banks this month and it will report on the actual compensation figures at a later date.
Unlikely fee gouging would have been discovered without FOFA
The inquiry was sparked by a series of significant breaches about fee-for-service failures ASIC received between August and December last year.
In all, the breaches related to 21 different licensed advice providers owned by the Commonwealth Bank, NAB, ANZ, Westpac and AMP.
CBA has owned up to the largest likely compensation payout of $105.7 million, plus interest, while the ANZ is looking like paying out at least $50 million.
ASIC deputy chair Peter Kell was pointed in his observations about the banks' behaviour.
"Charging fees without providing a service is not what a profession does," he said.
Mr Kell said, without the Future of Financial Advice (FOFA) reforms - which were strongly opposed by the banks, it is highly unlikely the problems would have surfaced.
"The industry had a focus on fee maximisation and an opaque fee structure," he said.
He said the FOFA reforms requirements for an annual fee disclosure statement and clients to sign an "opt-in" statement every two years forced the banks to self-report the breaches.
"To a large degree it is a legacy issue but it does not mean for one minute firms should not pay the money back."
Two key failures around fee but no advice
ASIC identified two key areas where the banks failed customers.
ASIC releases report on the charging of advice fees without providing advice by major financial institutions https://t.co/Pkq3ZDrX9Z— ASIC Media (@asicmedia) October 27, 2016
The first concern ASIC identified was when customers who have financial advisers pays fees to receive ongoing advice from that adviser, but the adviser does not provide the advice.
Secondly ASIC found instances where customers who do not have a financial adviser — because, for example, the adviser departed the advice licensee or retired — is charged a fee for ongoing advice, which the customer does not receive.
ASIC said, given the extent of the failures so far uncovered, the banks and financial institutions will be required to conduct even deeper reviews over a longer period of time.
The new reviews will cover all businesses authorised to give financial advice and extend back an additional seven years to July 2008.
Automatic payments and culture of fee generation to blame
ASIC said the its study identified numerous cultural issues in the systemic failure.
• A culture of reliance on automatic periodic payments, such as sales commissions and adviser service fees
• Advice licensees prioritising revenue and fee generation over ensuring that they delivered the required services
• A failure to keep adequate records or to capture sufficient data electronically to enable monitoring and analysis
The regulator uncovered evidence of one business charging customers for retention of records it was obliged to keep by law, while another believed that three answered phone calls to a client could be considered "financial advice".
ASIC was not entirely happy with the response to the review and remediation process.
"On some occasions advice licensees proposed review and remediation processes that were legalistic and did not prioritise the interests of customers," ASIC observed.
The banks have been under increasing pressure from regulators, politicians and the public over mounting scandals relating to commission-driven sales, fee gouging, poor remediation practices and a lack of protection for "whistleblowers" who report deceptive practices.
A recent independent report found the banks were falling behind their own self-imposed schedule aimed at improving customer outcomes and restoring public trust.
ANZ, NAB apologise to customers
In a statement after the ASIC report was released, ANZ issued an apology to its 10,300 affected customers so far identified and said the accounts of all clients who subscribed to its Prime Access Service between 2006 and 2013 will also have their records reviewed to ensure they were also not charged for services not provided.
The ANZ complaints centred on its fee-for-service Prime Access package that was supposed to include priority access to financial planners, investment monitoring alerts and a documented annual review.
"We want to again apologise to our clients for not delivering all of the Prime Access services we promised and assure them we have been working hard to finalise remaining reimbursements by the end of this year," ANZ's head of wealth Alexis George said.
"We've also significantly improved our processes, training and compliance supervision to ensure this does not happen again," Ms George said.
NAB's chief customer officer Andrew Hagger said NAB is compensating some superannuation customers in relation to certain fees after it "proactively reported the issue to ASIC".
"While our intention with the proactive restructuring of corporate super fees beginning in 2012 was to do the right thing in providing greater transparency, and we provided better outcomes for many customers, we didn't execute the change well and we're sorry to those customers affected," he said in a statement.
CBA lagging in repayments to customers
The Commonwealth Bank said it had worked with an independent expert and ASIC to identify potentially affected customers and ensure the remediation approach is fair and consistent.
"We apologise to our customers who did not receive their annual review," CBA's head of wealth management Annabel Spring said in a statement.
"We are working hard to complete our review of customers and have commenced contacting customers to refund fees, wherever our records do not show that an annual review was provided.
"We will continue to look across our business for areas where we may have made mistakes and put things right for customers."
Mr Kell said he was unsure why CBA had so far only paid about $600,000 of its estimated future compensation figure in excess of $105 million, when other banks with much smaller liabilities had managed to pay out a significantly highly proportion.
"It is a very large program with the CBA," Mr Kell said.
"Whoever it is, they all (the banks) need to get their skates on and give the money back to their customers, we've been very blunt with them all, including the CBA."
Mr Kell said customers who had concerns beyond just the repayment of fees for services not supplied - such as money lost due to lack of timely advice - should contact the financial institution in the first instance and the Financial Ombudsman Service if the discussions were not satisfactory.
ASIC has told the banks they must complete their reviews and remediation of the 2013 to 2015 breaches by July next year, while the deadline has yet to be determined for the more extensive seven-year review.
Compensation outcomes as at 31 August 2016 and future projectionsThis article was first published on abc.net.auBy business reporter Stephen